Discussion Papers 2022

CIRJE-F-1206	"A Multi-Agent Incomplete Equilibrium Model and Its Applications to Reinsurance Pricing and Life-Cycle Investment"
Author Name	Kizaki, Keisuke, Taiga Saito and Akihiko Takahashi
Date	December 2022
Full Paper	PDF file
Remarks	Revised in January, August and November 2023; forthcoming in Insurance: Mathematics and Economics.

Abstract
This paper develops an incomplete equilibrium model with multi-agents' different risk attitudes and heterogeneous income/payout profiles. Particularly, we apply its concrete and computationally tractable model to reinsurance derivatives pricing and life-cycle investment, which are important for insurance and asset management companies in practice. In numerical experiments, we explicitly obtain endogenously determined expected returns of the risky asset in equilibrium, agents' specific reinsurance prices with their stochastic discount factors (SDF) and optimal life-cycle trading strategies. Moreover, we investigate how each agent's degree of risk aversion and income/payout profile, and correlations between an insurance or economic factor and the risky asset price affect reinsurance claims pricing and optimal portfolios in life-cycle investment.
Keywords: incomplete market; multi-agent model; equilibrium model; reinsurance pricing; life-cycle investment

Abstract

This paper develops an incomplete equilibrium model with multi-agents' different risk attitudes and heterogeneous income/payout profiles. Particularly, we apply its concrete and computationally tractable model to reinsurance derivatives pricing and life-cycle investment, which are important for insurance and asset management companies in practice. In numerical experiments, we explicitly obtain endogenously determined expected returns of the risky asset in equilibrium, agents' specific reinsurance prices with their stochastic discount factors (SDF) and optimal life-cycle trading strategies. Moreover, we investigate how each agent's degree of risk aversion and income/payout profile, and correlations between an insurance or economic factor and the risky asset price affect reinsurance claims pricing and optimal portfolios in life-cycle investment.

Keywords: incomplete market; multi-agent model; equilibrium model; reinsurance pricing; life-cycle investment